COMMISSIONER OF INCOME-TAX, CENTRAL CALCUTL'A versus GOLD MOHORE INVESTMENT CO. LTD.

Citation: [1970] 1 S.C.R. 199 · Decided: 03-04-1969 · Supreme Court of India · Bench: M. HIDAYATULLAH · Disposal: Appeal(s) allowed
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Judgment (excerpt)

199 
A 
COMMISSIOJ1fflR OF INCOME·TAX, CENTRAL CALCUTl'A. 
v. 
B 
c 
D 
E 
G 
H 
GOLD MOHORE INVESTMENT CO. LTD. 
April 3, 1969 
[M. HloA'i[ATULLAH, C.J., J. C. SHAH, V. RAMASWAMI, 
G. K. MITTER AND A. N. GROVER, JJ.] 
Conipany-Allotn1ent of bonus shares against original holding of shares 
-.\fethod of calculating profit or loss on sale of original and bonus shares. 
The respon~nt" company was a dealer in shares. 
In respect of each 
of ils holdings 
f shares in two different companies, it was allotted a s~t 
of bonus shares which were to rank pari passu with the old shares. Upon 
allotment of these bonus shares, the respondent company credited an. amount 
.representing the face value of the bonus shares received free of cost to -
a capital reserve account. Later, both the old as well as the bonus shares 
"·ere sold and, in its assessment to income tax for the assessment years 
1949-50 and 1~50-51, the respondent assessee company showed a loss in 
respect of the ~ale of one company's shares and a small profit on the sale 
.of the second ~ompany's shares. Both the profit as well as the loss on 
each transactiori was calculated by taking the actual price. paid for the old 
~hares together with the face value of the bonus shares as the cost of acquir-
mg all the sba~es. -The Income-tax Officer did not acoept thi_s method of 
calculation and~'he calculated the profit and the loss on. the two transactions 
by spreading t e cost of acquiring the old shares over the total number 
of shares inclu ing the bonus shares acquired free of cost. The Appellate 
Assistant Comrliissioner as \vell as the Tribunal upheld his vie\v but, the 
High Court, oci a reference, held in favour of the respondent assessee. 
On appeal to this Court, 
HELD : TJle correct method of determining the profit or Joss on the 
sale of bonus shares in cases where bonus shares rank pari passu is to take 
the cost of the! original shares and spread it over all the original as well as 
the bonus shares and to find out the average price of all the shares. [203. 
BJ 
Dalmia Investment Company Ltd. ·v. 
Com1nissioner of lncom~·lilX, 
Bihar 41, I.T.i. 705; Con11nissioner of Inco1ne-tax, Bihar v. Dalmia Invest-
ment Co. Ltd. 52 I.T.R. 567; Commissioner of Income-tax, 
Central Cal• 
cut ta v. Gold ;Mohore Investment Co. Ltd. 68 I.T.R. 213 referred to. 
En1erald &
1 
Co. Ltd. v. Com'missioner of Income-tax Bombay 36 l.T.R. 
257 considered and distinguished. 
CML AiPELLATE JURISDICTION: 
Civil Appeals Nos. 1236 
and 1237 o 1967. 
Appeal rom the judgment a,nd order dated April 27, 1963 
of !he Calcutta High Court in Income-tax Reference No. 65 of 
1954. 
B. Sen, T. A. Ramachandran and R. N. Sachthey, for the 
appellant ( iJl both the appeals) . 
Sachin qhaudhuri, A. N. Mitter and I. N. Shroff, for the res· 
pondent (in: both the appeals). 
The Judgment of the Court was delivered by 
Ridayatoilah, C.J. These are two appeals by the Commis--
200 
SUPREME COURT REPORTS 
[1970] 1 S.C.R· 
sioner of Income-Tax, Central, Calcutta against Messrs. 
Gold 
Mohore Investment Co. Ltd. and arise out of Income-tax Refe-
rence 65 / 54 decided by the Calcutta High Court on August 27, 
1963. The point involved in the appeals is the va!W1tion of bonus 
shares in the assessment yean ending March 31, 1950 and 1951. 
respectively. The previous years corresponding to the assessment 
years were the financial years ending 31st March, 1949 and 1950, 
~espectively. 
A 
B 
The Assessee Company is a dealer in shares. 
Its method of 
-valuation at the opening and closing of the stocks is to value 
shares at cost. In the Asseesment Year 1949-50 the Company 
..held 2,500 shares of the face value of Rs. 10 each in the Howrah 
C 
Mills Co. Ltd. They had been purchased at Rs. 85 per share 
and the total cost to the Assessce Company was Rs. 2,12,500. 
In June 1948 bonus shares were issued by the Howrah Mills Co. 
Ltd. in proportion of three shares for every two original shares. 
The bonus shares were to rank pari passu with the old shares. As 
a result, the Assessee Company obtained 3750 shares of the face 
value of Rs. 10 each. On August 2, 1948, the Assessce Com-
pany sold the original ;hares for Rs. 72,087 /8, i.e. at about 
Rs. 29 per share. 
On March 18, 1949 the Assessce Company 
sold 3,750 shares for Rs. 95,250, that is to say, at Rs. 25 per 
share. The Assessee Company computed a loss of Rs. 84,041/12. 
It calculated the loss in the following manner : 
D 
---
E 
~2500 shares 
2,12,500-0-0 
(old).
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